What changed in this filing

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Item 1. Business

2021-02-24 compared with 2020-02-25 · 216 added, 173 removed, 635 unchanged (38% of the section changed)

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• Long-lasting solution with a battery designed to last approximately 11 years without charging or maintenance.

The results from multiple clinical trials, which include four sponsored and 19 independent clinical studies that evaluated approximately 2,000 patients, including approximately 960 patients evaluated in independent clinical studies, together with patient-reported outcomes, have shown that our Inspire therapy provides statistically significant and sustained reduction in the severity of patients’ OSA, improvement in sleep-related quality of life and reduction in snoring, as well as high patient compliance rates and a strong safety profile.

The results from multiple clinical trials, which include four sponsored and more than 40 independent clinical studies that evaluated approximately 2,500 patients, have shown that our Inspire therapy provides statistically significant and sustained reduction in the severity of patients’ OSA, improvement in sleep-related quality of life and reduction in snoring, as well as high patient compliance rates and a strong safety profile.

Our pivotal STAR trial was designed to demonstrate longitudinal therapy efficacy and included a randomized controlled therapy withdrawal study.

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As of December 31, 2020, we had 107 sales territories in the U.S.

and eight in Europe.

and nine in Europe.

Our direct sales force engages in sales efforts and promotional activities focused on ear, nose and throat ("ENT") physicians, and sleep centers.

In addition, we highlight our compelling clinical data and value proposition to increase awareness and adoption amongst referring physicians.

We build upon this top-down approach with strong direct-to-patient marketing initiatives to create awareness of the benefits of our Inspire system and drive demand through patient empowerment.

This outreach helps to educate thousands of patients on our Inspire therapy and frequently results in patient leads.

Our customers are reimbursed the cost of patient treatment by various third-party payors, such as commercial insurance providers and government agencies.

We have secured positive coverage policies with 52 U.S.

commercial payors, representing approximately 165 million covered lives.

We build upon this top-down approach with strong direct-to-consumer marketing initiatives to create awareness of the benefits of our Inspire system and drive demand through patient empowerment.

This outreach helps to educate thousands of patients on our Inspire therapy.

Our customers are generally reimbursed for the cost of patient treatment by various third-party payors, such as commercial insurance providers and Medicare.

As of February 23, 2021, we have secured positive coverage policies with 63 U.S.

commercial payors, including most large national commercial insurers, encompassing approximately 220 million covered lives in the U.S.

We are in active discussions with commercial insurers to establish additional positive coverage policies and modify existing positive coverage policies to support reimbursement of Inspire therapy.

In parallel, a subset of our 16 person reimbursement team, which we refer to as our market access team, is focused on assisting patients and physicians in obtaining appropriate prior authorization approvals from commercial payors on a case-by-case basis in advance of treatment with our Inspire therapy.

In addition, Medicare coverage for our procedure is determined on a case-by-case basis.

All seven Medicare Administrative Contractors ("MACs") have drafted positive coverage policies for Inspire therapy and five of these MACs have since announced the formal release dates of either March 15, 2020 or April 1, 2020 for their final policies covering Inspire therapy.

We expect the final two MACs will finalize their policies in 2020.

In addition, all seven Medicare Administrative Contractors ("MACs") published final policies in 2020 that provide coverage of Inspire therapy when certain coverage criteria are met.

We also have a U.S.

government contract for patients who are treated by the Veterans Health Administration.

We are in active discussions with commercial insurers to establish additional positive coverage policies to support reimbursement of Inspire therapy.

The procedure performed to implant our device is currently described for billing purposes using a Category I Current Procedural Terminology (“CPT”) code (64568), which is used in conjunction with a temporary Category III CPT code (0466T).

At the October 2020 American Medical Association (“AMA”) CPT Editorial Panel meeting, the AMA approved the creation of new Category I CPT codes to separately identify hypoglossal nerve stimulator services.

A Category I code was also approved for Drug-Induced Sleep Endoscopy, which is the final procedure to determine which patients are appropriate for Inspire therapy.

These new codes are scheduled to go into effect beginning January 1, 2022.

With these approvals, a formal survey will be conducted to determine the Medicare reimbursement levels assigned to each code.

The results of this survey are expected to be announced in July 2021 and reviewed by the Centers for Medicare and Medicaid Services (“CMS”) in conjunction with the annual Medicare Physician Fee Schedule rulemaking cycle.

We generated revenue of $115.4 million, with a gross margin of 84.7% and a net loss of $57.2 million, for the fiscal year ended December 31, 2020, compared to revenue of $82.1 million, with a gross margin of 83.4% and a net loss of $33.2 million, for the fiscal year ended December 31, 2019, and revenue of $50.6 million, with a gross margin of 80.1% and a net loss of $21.8 million, for the fiscal year ended December 31, 2018.

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We have developed a significant body of clinical data that demonstrates the safety and effectiveness, therapy adherence, and long-term sustained benefits of our Inspire therapy.

The benefits of treatment with Inspire therapy have been consistent across four sponsored and 19 independent clinical studies that evaluated approximately 2,000 patients, including approximately 960 patients evaluated in independent clinical studies, and have been highlighted in more than 100 peer-reviewed publications.

The benefits of treatment with Inspire therapy have been consistent across four sponsored and more than 40 independent clinical studies that evaluated approximately 2,500 patients, and have been highlighted in more than 150 peer-reviewed publications.

Data reported in these clinical studies also demonstrated a high level of overall patient satisfaction.

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In addition, we are highlighting our compelling clinical data set and value proposition to increase awareness and adoption amongst referring physicians.

We build upon this top-down approach with a strong direct-to-patient marketing initiative that further drives demand through patient empowerment.

This outreach helps to educate thousands of patients on our Inspire therapy and frequently results in patient leads.

We build upon this top-down approach with a strong direct-to-consumer marketing initiative that further drives demand through patient empowerment.

This outreach helps to educate thousands of patients on our Inspire therapy.

We are confident that this holistic approach to engagement across multiple constituents will continue to drive increased awareness of and demand for our Inspire therapy.

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In addition, this team proactively works with payors to establish positive coverage policies by highlighting the compelling clinical data and the value of our Inspire therapy.

This highly leverageable team has been successful in helping to secure reimbursement from approximately 430 commercial payors to date, and positive coverage policies from 52 U.S.

commercial payors, including several large national payors.

This highly leverageable team has been successful in helping to secure reimbursement from hundreds of commercial payors to date, and positive coverage policies from 63 U.S.

commercial payors, including most large national payors.

• Strong research and development capabilities and comprehensive intellectual property portfolio.

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For example, in the U.S., in July 2017, and in Europe, in May 2018, we launched the fourth generation of our Inspire system, with a neurostimulator that is 40% smaller and 18% thinner than the neurostimulator in the previous generation, while maintaining an approximate 11-year battery life without needing to be recharged.

Patients treated with this fourth generation device may now undergo an MRI scan of the head or extremities.

Patients treated with this fourth generation device may now undergo an

MRI scan of the head or extremities.

In October 2018, the first implant of our new sensing lead was successfully completed in Germany, and in January 2019, the FDA approved the new sensing lead.

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It also incorporates several features to enable easier implanting and potentially reduce surgical time for an ENT surgeon.

We have a comprehensive patent portfolio to protect our intellectual property and technology, with rights as of

December 31, 2019 to 28 issued U.S.

We have a comprehensive patent portfolio to protect our intellectual property and technology, with rights as of December 31, 2020 to 34 issued U.S.

patents, 29 issued foreign patents, 48 pending U.S.

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In addition, we intend to continue to publish additional clinical data in various industry and scientific journals and online, and to present at various industry conferences.

We also plan to continue building patient awareness through our direct-to-patient marketing initiatives, which include paid online search, radio, social media, television, and online videos.

We also plan to continue building patient awareness through our direct-to-consumer marketing initiatives, which include paid online search, radio, social media, television, and online videos.

• Expand our U.S.

sales and marketing organization to drive adoption of our Inspire therapy.

sales and marketing organization to facilitate adoption of our Inspire therapy.

We plan to expand our sales and marketing organization and seek to recruit and train exceptionally talented sales representatives in existing and new markets in the U.S.

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Our dedicated in-house market access team will continue to assist patients and physicians in obtaining prior authorization approvals from commercial payors for treatment with our Inspire therapy.

In parallel, we are in active discussions with commercial payors to establish positive coverage policies and continue to highlight our compelling and robust clinical data and our increased support from leading medical organizations and key opinion leaders.

In parallel, we are in active discussions with commercial payors to establish positive coverage policies and modify existing policies when needed.

We believe increased positive payor coverage policies could substantially expand patient access by reducing hurdles to treatment.

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We intend to invest in existing and next generation technologies to further improve our products and clinical outcomes, optimize patient acceptance and comfort and broaden the patient population that can benefit from our Inspire therapy.

Recent examples of our product innovation include the next generation of the Inspire neurostimulator, which is in development, and active projects to improve the physician programmer and the patient remote control, which will be Bluetooth enabled.

We have launched a cloud-based patient management system called Inspire Cloud, which allows physicians to monitor patient compliance and more efficiently coordinate patient care, and in 2020, we launched the Inspire Sleep app for patients' smart phones.

An example of our efforts to expand our label indications includes our clinical study that is evaluating the use of Inspire therapy in pediatric patients with Down syndrome.

In April 2020, we received FDA approval for an expanded age-range for Inspire therapy to

include 18 to 21 year old patients, and in August 2020, the Australian Therapeutic Goods Administration approved Inspire therapy to treat moderate to severe OSA.

• Further penetrate and expand into existing and new international markets.

We plan to establish and strengthen our presence internationally.

Our goal is to further increase sales of our Inspire therapy in existing international markets in Europe, including Germany and the Netherlands, and expand our reach to new markets, such as Japan and Australia.

Our goal is to further increase sales of our Inspire therapy in existing international markets in Europe, including Germany and the Netherlands, and expand our reach to markets in new regions, such as Japan and Australia.

We plan to strategically invest in new markets based on our assessment of market size and opportunity and prospects for compelling reimbursement coding and coverage.

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We continue to work on the reimbursement process in Japan and hope to commercialize Inspire therapy there.

In August 2020, the Australian Therapeutic Goods Administration approved Inspire therapy to treat moderate to severe OSA, and we are currently seeking reimbursement coverage in Australia.

To commercialize our Inspire system, both in the U.S.

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To achieve this, our commercialization strategy primarily consists of our direct sales force engaging in sales efforts and promotional activities focused on ENT physicians and sleep centers and highlighting our compelling clinical data and value proposition.

Our direct sales force utilizes strong direct-to-patient marketing initiatives to create awareness of the benefits of our Inspire system.

Our direct sales force utilizes strong direct-to-consumer marketing initiatives to create awareness of the benefits of our Inspire system.

We intend to make significant investments building our sales and marketing organization by increasing the number of U.S.

sales representatives and continuing our direct-to-patient marketing efforts in existing and new markets throughout the U.S.

sales representatives and continuing our direct-to-consumer marketing efforts in existing and new markets throughout the U.S.

In addition, a significant part of our commercialization effort consists of supporting our customers through the reimbursement process.

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For those payors that do not have a positive policy, Inspire provides robust prior authorization support to our customers.

Medicare has pending positive coverage for all states, which we expect will be finalized in 2020, and we have a U.S.

Medicare also has

positive coverage for all states, and we have a U.S.

government contract for patients who are treated by the Veterans Health Administration.

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Patients who cannot tolerate PAP treatments are those who either are unable to use PAP more than five nights per week for at least four hours per night, or who are unwilling to use PAP treatment.

We have submitted a PMA supplement to the FDA to expand our indication in the U.S.

to patients as young as 13 years of age, which is currently under review.

The Inspire system is implanted under general anesthesia through three small incisions.

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Clinical Results and Studies

A significant body of published clinical evidence, which includes four sponsored and 19 independent clinical studies that evaluated approximately 2,000 patients, including approximately 960 patients evaluated in

independent clinical studies, supports the safety and effectiveness of our Inspire therapy.

A significant body of published clinical evidence, which includes four sponsored and more than 40 independent clinical studies that evaluated approximately 2,500 patients, supports the safety and effectiveness of our Inspire therapy.

The results of the STAR trial, our phase III pivotal clinical trial that served as the basis for the FDA approval of our PMA application, were published in the New England Journal of Medicine , and the results of additional clinical studies have been published in more than 150 peer-reviewed publications.

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The table below highlights key findings from certain of these studies and data from the first 1,017 patients in our ADHERE patient registry, including significant improvements in objective sleep measures and patient-reported quality of life measures, strong therapy compliance, and a favorable safety profile.

STAR Trial(1) German

STAR Trial (1)

Patient Registry (1)

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89% ≥20 hours per week Average 5.6 hours per night Average >45 hours per week

>75% ≥40 hours per week

* Not measured

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After 12 months, 46 consecutive patients who met the criteria of having a response to therapy were then included in a randomized, controlled therapy-withdrawal trial.

These patients were randomly assigned, in a 1:1 ratio, to a therapy-withdrawal group, which had the device turned off for at least five days until a sleep study or polysomnogram was performed, or to a therapy-maintenance group, which continued nightly use of the device.

These patients were randomly assigned, in a 1:1 ratio, to a

therapy-withdrawal group, which had the device turned off for at least five days until a sleep study or polysomnogram was performed, or to a therapy-maintenance group, which continued nightly use of the device.

We have continued to follow patients from the STAR trial to collect data regarding long-term efficacy and utilization.

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We established our ADHERE patient registry to follow patients who have been implanted with an Inspire system, with a goal of collecting data on a group of at least 5,000 patients.

Data gathered to date on the first 1,017 patients published in Laryngoscope in 2019 showed that patients used Inspire therapy an average of 5.6 hours per night when measured an average of 12 months after implantation.

Data gathered on the first 1,017 patients published in Laryngoscope in 2019 showed that patients used Inspire therapy an average of 5.6 hours per night when measured an average of 12 months after implantation.

Median AHI was reduced from 32.8 events per hour to 9.5 events per hour and median ESS score improved from 11 to 6 over the same period.

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• At a non-academic hospital in San Diego, Dr.

Weeks reported in in Laryngoscope Investigative Otolaryngology on 22 consecutive patients treated with Inspire therapy.

Weeks reported in Laryngoscope Investigative Otolaryngology on 22 consecutive patients treated with Inspire therapy.

Implant times for these patients averaged 171±40 minutes.

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A higher percentage of patients who received Inspire therapy (88%) were successfully treated compared to patients who received UPPP (64%), with successful treatment defined as a reduction in AHI of at least 50% from baseline and achieving an AHI of less than 20 events per hour.

International, Multi-Center Comparison of Sleep Surgery versus Inspire Therapy

In the largest study to date comparing Inspire therapy to sleep surgery, an international team retrospectively evaluated sleep surgery outcomes, including UPPP and tongue-base procedures versus similarly selected patients who received Inspire therapy.

This study included several hundred patients in each cohort.

Their findings demonstrated that Inspire therapy had a larger median reduction of 20 events/hours versus a reduction of 16 events/hour with sleep surgery.

Additionally, therapy outcomes were more predictable with Inspire therapy, with 70% of patients meeting the commonly used Sher response definition of a 50% decrease in AHI and fewer than 20 events/hour after treatment, versus a 48% response rate in those receiving sleep surgery.

Sales and Marketing

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We also focus on sleep centers because they diagnose and manage large volumes of patients with sleep apnea and are often an important referral base for ENT physicians.

In addition, because OSA is sometimes diagnosed during other procedures, we have developed programs to help educate

general practitioners and specialists in other fields, such as cardiovascular surgeons, electrophysiologists, and dentists, regarding our Inspire therapy.

In addition, because OSA is sometimes diagnosed during other procedures, we have developed programs to help educate general practitioners and specialists in other fields, such as cardiovascular surgeons, electrophysiologists, and dentists, regarding our Inspire therapy.

We have 107 sales territories in the U.S.

and eight in Europe.

and nine in Europe.

We seek to recruit sales representatives with strong sales backgrounds, direct experience developing markets with new technologies, and core knowledge of medical device coding, reimbursement, and the prior authorization process.

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We believe our patient outreach efforts have been effective in bringing potential patients to our website and facilitating contact with our clinical sites.

During 2019, we had approximately 4.5 million individual hits to our website and had over 2.0 million “engaged” visitors, defined as visitors who went to at least two pages or took an action while visiting our website.

In 2019, we had nearly 520,000 visitors who used our website to find a physician in their area, more than 33,000 visitors contacted a clinical site to schedule an appointment, and about 10,000 visitors who signed up for a local Inspire informational event.

During 2020, we had over 4.8 million visits to our website from over 3.7 million unique users, of which 237,000 used our "Find a Doctor" function to find a physician in their area.

This generated more than 61,000 contacts with physicians throughout the year and approximately 23,000 visitors to our website signed up to attend a local or online Inspire informational event.

In 2020, we launched the Inspire Sleep app for patients' smart phones.

The first version of the app was an educational tool, and the second version interfaces with the Inspire Cloud and allows physicians to collect clinical data from patients directly.

We continue to enhance the functionality of this app as part of our overall digital platform development.

During 2020, over 7,000 copies of the app were downloaded to smartphones.

Commercial Activities Outside of the U.S.

We have eight sales territories in Europe, five of which are located in Germany.

We have nine sales territories in Europe, six of which are located in Germany.

Our general practice is to limit commercial investments in European countries until such time as there is a determined reimbursement pathway.

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and have established a support team in Europe for patient outreach and education, implant support, and device programming.

We expect to continue to scale our commercial activities in Europe as we continue to develop country-wide reimbursement in additional markets.

We continue to work on the reimbursement process in Japan and hope to commercialize Inspire therapy there.

We expect to continue to

scale our commercial activities in Europe as we continue to develop country-wide reimbursement in additional markets.

We continue to work on the reimbursement process in Japan and Australia and hope to commercialize Inspire therapy there.

Third-Party Reimbursement

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In the U.S., we sell our products to hospitals and ASCs.

These customers in turn bill various third-party payors, such as commercial payors and government agencies, for the cost required to treat each patient.

Third-party payors require physicians and hospitals to identify the service for which they are seeking reimbursement by using Current Procedural Terminology ("CPT") codes, which are created and maintained by the American Medical Association ("AMA").

These customers in turn bill various third-party payors, such as commercial payors and Medicare, for the cost required to treat each patient.

Third-party payors require physicians and hospitals to identify the service for which they are seeking reimbursement by using CPT codes, which are created and maintained by the AMA.

Implantation of our Inspire neurostimulator and stimulation lead is described by CPT code 64568, which is the code describing the implantation of a cranial nerve stimulator.

Implantation of our Inspire pressure sensing lead is described by CPT code 0466T, a Category III code published by the AMA in January 2017.

At the October 2020 AMA CPT Editorial Panel meeting, the AMA approved the creation of new Category I CPT codes to separately identify hypoglossal nerve stimulator devices.

A Category I code was also approved for Drug-Induced Sleep Endoscopy, which is the final procedure to determine which patients are appropriate for Inspire therapy.

These new codes are scheduled to go into effect beginning January 1, 2022.

With these approvals, a formal survey will be conducted to determine the Medicare reimbursement levels assigned to each code.

The results of this survey are expected to be announced in July 2021 and reviewed by CMS in conjunction with the annual Medicare Physician Fee Schedule rulemaking cycle.

While CMS has significant discretion over the final reimbursement rates assigned, the Company believes that these coding changes will have a positive impact on Medicare reimbursement related to our technology.

Physician reimbursement under Medicare generally is based on a defined fee schedule, the Physician Fee Schedule, through which payment amounts are determined by the relative values of the professional service rendered.

Medicare provides reimbursement to our hospital customers under the hospital outpatient prospective payment system ("HOPPS") which provides bundled amounts generally intended to reimburse the hospital for all facility costs related to procedures performed in the hospital outpatient setting.

Under the HOPPS, the 2020 national average Medicare payment to the hospital for this procedure is approximately $29,000, which covers the hospitals’ costs for the device and the implantation procedure.

The physician is issued a separate payment for the

professional service under the Medicare Physician Fee Schedule.

Under the HOPPS, the 2021 national average Medicare payment to the hospital for this procedure is $29,445, which is intended to cover the hospitals’ costs for the device and the implantation procedure.

The physician’s professional services are reimbursed separately under the Medicare Physician Fee Schedule.

The 2021 national average physician fee for the primary implant (CPT code 64568) is $600.

The reimbursement rate for the professional service to implant the pressure sensor (add-on CPT code 0466T) is subject to contractor pricing, which means the rate is set by each MAC individually.

Of the published contractor rates in 2021, the MACs have assigned professional service fees ranging from $434 to $628 for CPT 0466T.

Reimbursement rates from commercial payors vary depending on the procedure performed, the commercial payor, contract terms, and other factors.

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A core pillar of our reimbursement strategy involves broadening our third-party payor coverage.

We continue to have active discussions with commercial payors to establish positive coverage policies by highlighting our compelling and robust clinical data, increased patient demand, and support from leading medical societies and key opinion leaders.

We continue to have active discussions with commercial payors to establish new and modify existing positive coverage policies by highlighting our compelling and robust clinical data, increased patient demand, and support from leading medical societies and key opinion leaders.

We have been successful in obtaining prior authorization approvals from over 500 commercial payors for the Inspire device and procedure.

Historically, commercial payors approve prior authorization requests for approximately 70% of Inspire implants in the U.S.

We estimate that 70% of patients who meet the FDA indication for Inspire therapy are covered by commercial insurance companies and we have secured coverage policies with most major national commercial payors.

A number of other commercial payors currently consider hypoglossal nerve stimulation to be investigational, including procedures involving the Inspire system, and therefore do not have formal coverage policies.

Procedures involving our Inspire system may be reimbursed on a medical necessity basis for some Medicare patients, and all seven local MACs have published positive draft local coverage determinations for Inspire therapy.

Five of these MACs have since announced the formal release dates of either March 15, 2020 or April 1, 2020 for their final policies covering Inspire therapy and we expect the final two MACs will finalize their policies in 2020.

Medicare has historically accounted for approximately 30% of all Inspire system implantations in the U.S., although we expect this percentage to decrease over time as commercial policies are developed.

We estimate that the majority of patients who meet the FDA indication for Inspire therapy are covered by commercial insurance companies and we have secured coverage policies with most major national commercial payors.

A number of small regional commercial payors currently consider hypoglossal nerve stimulation to be investigational, including procedures involving the Inspire system, and therefore do not have formal coverage policies.

All seven MACs published final policies in 2020 that provide coverage of Inspire therapy when certain coverage criteria are met.

Previously, procedures involving our Inspire system were reimbursed on a claim-by-claim basis for some Medicare patients.

Medicare beneficiaries have historically accounted for approximately 25% of all Inspire system implantations in the U.S.

In addition, we have a contract with the U.S.

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We believe our market access team is highly effective in working with patients and physicians to obtain prior authorizations for our Inspire system including assisting with the appeals process.

In 2019, we received multiple prior authorization approvals from most of the largest commercial payors, for example Anthem, Cigna, Blue Cross Blue Shield, and Humana.

In addition, in 2019, market access team helped over 90% of patients who pursued the appeals process fully to secure prior authorizations with an average approval time of approximately two to three months, with less than 10% being denied external medical review approval while the remainder were lost to follow-up.

Our market access team supported approximately 2,500 individual patient submissions in 2018 and approximately 3,000 individual patient submissions in 2019.

By the end of 2020, we had received multiple prior authorization approvals from all of the largest commercial payors, for example Anthem, Cigna, Blue Cross Blue Shield, Aetna, United Healthcare, and Humana.

In addition, in 2020, our market access team helped 97% of patients who pursued the appeals process fully to secure prior authorizations with a median approval time of about 12 days, with approximately 2% being denied at external medical review, while the remainder were lost to follow-up.

Our market access team supported approximately 3,000 individual patient submissions in 2019 and nearly 4,000 individual patient submissions in 2020.

We believe we will continue to benefit from this efficient prior authorization process in the near-term and in the longer-term by expanding positive coverage policies.

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Reimbursement Outside of the U.S.

In Germany, the Institut für das Entgeltsystem im Krankenhaus, the German federal reimbursement agency, has granted the Neue Untersuchungs-und Behandlungsmethoden ("NUB") Status 1 coverage for our Inspire system.

In Germany, the Institut für das Entgeltsystem im Krankenhaus ("InEK"), the German federal reimbursement agency, fully integrated Inspire therapy into the German hospital reimbursement system (“G-DRG”), effective January 1, 2021.

The integration was done under conditions of a Zusatzentgelt (a supplemental fee or add-on payment scheme).

The reimbursement for the procedure has two parts, a G-DRG fee plus an add-on payment called a ZE fee, in this case, ZE2021-187 Neurostimulatoren zur Hypoglossusnerv-Stimulation (Neurostimulators for hypoglossal nerve stimulation).

The amount for the G-DRG is calculated annually by the InEK based on empirical cost data supplied by reference hospitals.

The locally negotiated ZE fee is paid additionally and usually covers device fees for the Inspire system, additional procedural equipment, and service costs that are not included within the G-DRG.

Before January 1, 2021, Germany’s reimbursement for the Inspire procedure was provided through Neue Untersuchungs-und Behandlungsmethoden ("NUB") Status 1 coverage.

The NUB process allows for the introduction of new and innovative medical devices prior to reaching reimbursement eligibility and provides for a supplemental payment for new technologies in the German reimbursement system.

NUB Status 1 is the highest of four levels and allows for full reimbursement for our Inspire system for the 113 hospitals that applied for therapy in 2019.

Under NUB Status 1, payors at these hospitals are obligated to cover the gaps in treatment costs for the Inspire system.

NUB Status 1 is the highest of four levels and allowed for full reimbursement for our Inspire system.

Under NUB Status 1, payors at these hospitals were obligated to cover the gaps in treatment costs for the Inspire system.

In the Netherlands, the Zorginstituut, or the Dutch Health Institute, has approved Inspire therapy for conditional reimbursement within the basic package of all payors.

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This allows patients to receive the Inspire system in certain hospitals and within the indication covered by the Swiss DRG.

Reimbursement in other European countries is primarily provided by single center hospitals from their operating budgets or with generic payment codes, but we intend to continue to develop reimbursement in other European countries including Belgium, France, Italy, Spain, the Nordic region, and any other new market that we may enter in the future, such as Japan and Australia.

Reimbursement in other countries is established through individual hospital innovation budgets, or through the use of generic payment codes.

We continue to pursue permanent reimbursement in target markets across

Europe, including Belgium, France, Spain, the United Kingdom, the Nordic region, and any other new markets that we may enter in the future, such as Japan and Australia.

Research and Development

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Based on the initial clinical trial results, which were published in 2001, Medtronic began developing what became known as our Inspire II system, introducing a new, more durable stimulation lead and lower-power neurostimulator, and relocating the respiratory sensing lead to between the intercostal muscle layers.

After our inception and the spin-off of the Inspire business from Medtronic in 2007, our primary focus was to requalify the Inspire II system and resume clinical trial activity.

After our November 2007 inception and contemporaneous spin-off of the Inspire business from Medtronic, our primary focus was to requalify the Inspire II system and resume clinical trial activity.

We completed a phase I feasibility trial along with a phase II dosing or patient selection trial in 2009.

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This smaller profile is intended to simplify surgical placement along with several other features to enable easier implanting, and potentially reduce surgical time for an ENT surgeon.

Our next generation of the Inspire neurostimulator is in development.

Our next generation of the Inspire neurostimulator is in development, and we also have active projects to improve the physician programmer and the patient remote control, which will be Bluetooth enabled.

We have launched a cloud-based patient management system called Inspire Cloud, which allows physicians to monitor patient compliance and more efficiently coordinate patient care.

In 2020, we launched the Inspire Sleep app for patients' smart phones.

The first version of the app was an educational tool, and the second version interfaces with the Inspire Cloud and allows physicians to collect clinical data from patients directly.

We continue to enhance the functionality of this app as part of our overall digital platform development.

The Inspire Cloud and our app are initial steps in establishing interconnectivity between the patient and their healthcare provider with a long-term plan to improve outcomes by tracking patient activity and adherence, and monitoring for any issues with device use.

Additional Indications

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For instance, in January 2017, the FDA approved a PMA supplement expanding the indicated AHI range for our Inspire therapy from 20 to 65 events per hour to 15 to 65 events per hour.

We have submitted a PMA supplement to the FDA to expand our indication in the U.S.

to patients as young as 13 years of age.

This expanded indication would also allow pediatric patients with Down syndrome to be treated with Inspire therapy.

Patients born with Down syndrome have higher rates of OSA than the general pediatric population.

The incidence rate can range from 30% to 60% in children with Down syndrome, compared to 1% in the general population.

OSA remains a long-term disability in many of these individuals, and CPAP compliance in this patient population is significantly worse than in the general population.

Results from a six-patient trial in adolescents with Down syndrome were published in 2017 in JAMA Otolaryngology-Head & Neck Surgery demonstrating the safety and efficacy of Inspire therapy for treating this patient population.

Results from this investigator-initiated trial suggest that Inspire therapy may have therapeutic potential in Down syndrome patients.

In April 2020, we received FDA approval for an expanded age-range of patients who can be treated with Inspire therapy, which now includes 18 to 21-year old patients.

Our research and development team focuses on the products currently under development, including our clinical trials, as well as feasibility studies in which we are evaluating different design configurations to enhance product functionality for future generations of the Inspire system.

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We consider our primary competition to be other neurostimulation technologies designed to treat OSA, though we are currently the only such technology approved for commercialization in the U.S.

Outside the U.S., we compete with ImThera (now a part of LivaNova), which markets an open-loop neurostimulation device.

ImThera is currently conducting clinical trials of its device in the U.S.

Outside the U.S., we compete with LivaNova, which markets an open-loop neurostimulation device.

LivaNova is currently conducting clinical trials of its device in the U.S.

Nyxoah, which developed a bilateral hypoglossal nerve stimulation device, is conducting its first pivotal trial as it seeks FDA approval.

We believe other emerging businesses are in the early stages of developing neurostimulation devices.

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We protect our proprietary rights through a variety of methods, including confidentiality and assignment agreements with suppliers, employees, consultants, and others who may have access to our proprietary information.

Our pending patent applications may not result in issued patents, and we cannot assure you that any current or subsequently issued patents will protect our intellectual property rights or provide us with any competitive advantage.

Our pending patent applications may not result in issued patents, and we cannot ensure that any current or subsequently issued patents will adequately protect our products or provide us with any competitive advantage.

While there is no active litigation involving any of our patents or other intellectual property rights and we have not received any notices of patent infringement, we may be required to enforce or defend our intellectual property rights against third parties in the future.

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Additionally, outsourcing provides expertise and capacity necessary to scale up or down based on demand for our Inspire system.

We select our suppliers to ensure that our Inspire system and its components are safe and effective,

adhere to all applicable regulations, are of the highest quality, and meet our supply needs.

We select our suppliers to ensure that our Inspire system and its components are safe and effective, adhere to all applicable regulations, are of the highest quality, and meet our supply needs.

We employ a rigorous supplier assessment, qualification, and selection process targeted to suppliers that meet the requirements of the FDA and the International Organization for Standardization and quality standards supported by internal policies and procedures.

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Our suppliers manufacture the components they produce for us and test our components and devices to our specifications.

We intend to maintain sufficient levels of inventory to enable us to continue our operations while we obtain another supplier in the event that one or more of our single-source suppliers were to encounter a delay in supply or end supply.

intend to maintain sufficient levels of inventory to enable us to continue our operations while we obtain another supplier in the event that one or more of our single-source suppliers were to encounter a delay in supply or end supply.

Government Regulation

Our products and our operations are subject to extensive regulation by the FDA and other federal and state authorities in the U.S., as well as comparable authorities in the European Economic Area ("EEA"), and in Japan and Australia (where our products are approved for sale but where we have not yet commercialized them).

Our products are subject to regulation as medical devices under the Federal Food, Drug, and Cosmetic Act ("FDCA") as implemented and enforced by the FDA.

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The FDA’s permission to commercially distribute a device subject to a 510(k) premarket notification is generally known as 510(k) clearance.

Under the 510(k) process, the manufacturer must submit to the FDA a premarket notification demonstrating that the device is “substantially equivalent” to either a device that was legally marketed prior to May 28, 1976, the date upon which the Medical Device Amendments of 1976 were enacted, or another commercially available device that was cleared to through the 510(k) process.

Devices deemed by the FDA to pose the greatest risks, such as life-sustaining, life-supporting or some implantable devices, or devices that have a new intended use, or use advanced technology that is not substantially equivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA.

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If the device presents a “significant risk” to human health, as defined by the FDA, the FDA requires the device sponsor to submit an IDE application to the FDA, which must become effective prior to commencing human clinical trials.

mitigating or treating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject.

A significant risk device is one that presents a potential for serious risk to the health, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating or treating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject.

An IDE application must be supported by appropriate data, such as animal and laboratory test results, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound.

The IDE will automatically become effective 30 days after receipt by the FDA unless the FDA notifies the company that the investigation may not begin.

If the FDA determines that there are deficiencies or other concerns with an IDE for which it requires modification, the FDA may permit a clinical trial to proceed under a conditional approval.

If the FDA determines that there are deficiencies or

other concerns with an IDE for which it requires modification, the FDA may permit a clinical trial to proceed under a conditional approval.

In addition, the study must be approved by, and conducted under the oversight of, an Institutional Review Board ("IRB") for each clinical site.

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• the federal False Claims Act (and similar state laws) prohibiting, among other things, knowingly presenting, or causing to be presented, claims for payment or approval to the federal government that are false or fraudulent, knowingly making a false statement material to an obligation to pay or transmit money or property to the federal government or knowingly concealing, or knowingly and improperly avoiding or decreasing, an obligation to pay or transmit money to the federal government.

The government may assert that claim includes items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the false claims statute;

The government may

assert that claim includes items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the false claims statute;

• clearance or approval of product modifications to 510(k)-cleared devices that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of our cleared devices, or approval of a supplement for certain modifications to PMA devices;

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Regulation of Medical Devices in the EEA

There is currently no premarket government review of medical devices in the EEA (which is comprised of the 28 Member States of the European Union ("E.U.") plus Norway, Liechtenstein, and Iceland).

However, all medical devices placed on the market in the EEA must meet the relevant essential requirements laid down in Annex I of Directive 93/42/EEC concerning medical devices ("the Medical Devices Directive").

There is also a directive specifically addressing Active Implantable Medical Devices (Directive 90/385/EEC).

There is currently no premarket government review of medical devices in the EEA (which is comprised of the 27 Member States of the European Union ("EU") plus Norway, Liechtenstein, and Iceland).

There is also a directive specifically addressing Active Implantable Medical Devices (Directive 90/385/EEC)(the "Active Implantable Medical Devices Directive" or "AIMDD").

The most fundamental essential requirement is that a medical device must be designed and manufactured in such a way that it will not compromise the clinical condition or safety of patients, or the safety and health of users and others.

In addition, the device must achieve the performances intended by the manufacturer and be designed, manufactured, and packaged in a suitable manner.

The European Commission has adopted various standards applicable to medical devices.

The European Commission has adopted various standards applicable to medical devices available in the EU.

These include standards governing common requirements, such as sterilization and safety of medical electrical equipment and product standards for certain types of medical devices.

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Compliance with a standard developed to implement an essential requirement also creates a rebuttable presumption that the device satisfies that essential requirement.

To demonstrate compliance with the essential requirements laid down in Annex I to the Medical Devices Directive, medical device manufacturers must undergo a conformity assessment procedure, which varies according to the type of medical device and its classification.

To demonstrate compliance with the essential requirements laid down in Annex I to the MDD, medical device manufacturers must undergo a conformity assessment procedure, which varies according to the type of medical device and its classification.

Conformity assessment procedures require an assessment of available clinical evidence, literature data for the product, and post-market experience in respect of similar products already marketed.

Except for low-risk medical devices (Class I non-sterile, non-measuring devices), where the manufacturer can self-declare the conformity of its products with the essential requirements (except for any parts which relate to sterility or metrology), a conformity assessment procedure requires the intervention of a notified body.

Notified bodies are often separate entities and are authorized or licensed to perform such assessments by government authorities.

The notified body would typically audit and examine a product’s technical dossiers and the manufacturers’ quality system.

Notified bodies are organizations designated by an EU country to assess the conformity of certain products before being placed on the market.

These bodies carry out tasks related to conformity assessment procedures set out in the legislation and typically audit and examine a product’s technical dossiers and the manufacturers’ quality system.

If satisfied that the relevant product conforms to the relevant essential requirements, the notified body issues a certificate of conformity, which the manufacturer uses as a basis for its own declaration of conformity.

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Once the product has been placed on the market in the EEA, the manufacturer must comply with requirements for reporting incidents and field safety corrective actions associated with the medical device.

In order to demonstrate safety and efficacy for their medical devices, manufacturers must conduct clinical investigations in accordance with the requirements of Annex X to the Medical Devices Directive ("MDD"), Annex 7 of the Active Implantable Medical Devices Directive ("AIMDD"), and applicable European and International Organization for Standardization standards, as implemented or adopted in the EEA member states.

Clinical trials for medical devices usually require the approval of an ethics review board and approval by or notification to the national regulatory authorities.

In order to demonstrate safety and efficacy for their medical devices, manufacturers must conduct clinical investigations in accordance with the requirements of Annex X to the MDD, Annex 7 to the AIMDD, and applicable European and International Organization for Standardization (“ISO”) standards, as implemented or adopted in the EEA Member States.

Clinical investigations for medical devices usually require the approval of an ethics review board and approval by or notification to the national regulatory authorities.

Both regulators and ethics committees also require the submission of serious adverse event reports during a study and may request a copy of the final study report.

On April 5, 2017, the European Parliament passed the Medical Devices Regulation (Regulation 2017/745), which repeals and replaces the E.U.

Medical Devices Directive and the Active Implantable Medical Devices Directive.

Unlike directives, which must be implemented into the national laws of the EEA member States, the regulations would be directly applicable, i.e., without the need for adoption of EEA member State laws implementing them, in all EEA member States and are intended to eliminate current differences in the regulation of medical devices

among EEA member States.

The Medical Devices Regulation, among other things, is intended to establish a uniform, transparent, predictable, and sustainable regulatory framework across the EEA for medical devices and ensure a high level of safety and health while supporting innovation.

The Medical Devices Regulation will only become applicable in May 2020, however CE certificates issued under the AIMDD or MDD framework that are in effect at that time will remain valid for the duration of that certificate provided significant changes are not made to the devices.

On May 25, 2017, the new Medical Devices Regulation (2017/745 or “MDR”) entered into force, which repeals and replaces the EU MDD and AIMDD.

Unlike directives, which must be implemented into the national laws of the EEA Member States, regulations are directly applicable, i.e., without the need for adoption of EEA Member State laws implementing them, in all EEA Member States and are intended to eliminate current differences in the regulation of medical devices among EEA Member States.

The MDR, among other things, is intended to establish a uniform, transparent, predictable, and sustainable regulatory framework across the EEA for medical devices and ensure a high level of safety and health while supporting innovation.

The MDR was due to become applicable in May 2021, but in light of COVID-19, on April 23, 2020, the European Parliament and the Council of the EU adopted a proposal to extend the transitional period of the MDR by one year, i.e.

until May 26, 2021.

However, devices lawfully placed on the market pursuant to the MDD or AIMDD prior to May 26, 2021 may generally

continue to be made available on the market or put into service until May 26, 2025.

Once applicable, the new regulations will among other things:

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• improve the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number;

• set up a central database to provide patients, healthcare professionals, and the public with comprehensive information on products available in the E.U.;

• strengthened rules for the assessment of certain high-risk devices, such as implants, which may have to undergo an additional check by experts before they are placed on the market.

We are subject to regulations and product registration requirements in many foreign countries in which we may sell our products, including in the areas of:

• set up a central database to provide patients, healthcare professionals, and the public with comprehensive information on products available in the EU;

• address strengthened rules for the assessment of certain high-risk devices, such as implants, which may have to undergo an additional check by experts before they are placed on the market.

Following the end of the “Brexit” Transition Period, from January 1, 2021 onwards, the Medicines and Healthcare Products Regulatory Agency (“MHRA”) will be responsible for the UK medical device market.

The new regulations will require medical devices to be registered with the agency (but manufacturers will be given a grace period of four to 12 months to comply with the new registration process).

Manufacturers based outside the UK will need to appoint a UK Responsible Person to register devices with the MHRA in line with the grace periods.

By July 1, 2023, in the UK (England, Scotland, and Wales), all medical devices will require a UKCA (UK Conformity Assessed) mark but CE marks issued by EU notified bodies will remain valid until this period.

However, UKCA marking alone will not be recognized in the EU.

The rules for placing medical devices on the Northern Ireland market will differ from those in the UK.

Similarly, we are subject to regulations and product registration requirements in many foreign countries in which we may sell our products, including in the areas of:

• design, development, manufacturing, and testing;

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The term “remuneration” has been broadly interpreted to include anything of value, including stock, stock options, and the compensation derived through ownership interests.

Recognizing that the federal Anti-Kickback Statute is broad and may prohibit many innocuous or beneficial arrangements within the healthcare industry, the DHHS issued regulations in July 1991, which the Department has referred to as “safe harbors.” These safe harbor regulations set forth certain provisions which, if met in form and substance, will assure medical device manufacturers, healthcare providers, and other parties that they will not be prosecuted under the federal Anti-Kickback Statute.

Additional safe harbor provisions providing similar protections have been published intermittently since 1991.

Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly.

Our arrangements with physicians, hospitals, and other persons or entities who are in a position to refer may not fully meet the stringent criteria specified in the various safe harbors.

Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor.

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Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all its facts and circumstances.

Conduct and business arrangements that do not fully satisfy one of these safe harbor provisions may result in increased scrutiny by government enforcement authorities.

Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the federal Anti-Kickback Statute has been violated.

In addition, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

Moreover, a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act (described below).

Violations of the federal Anti-Kickback Statute may result in civil monetary penalties up to $100,000 for each violation, plus up to three times the remuneration involved.

Civil penalties for such conduct can further be assessed under the federal False Claims Act.

Violations can also result in criminal penalties, including criminal fines of up to $100,000 and imprisonment of up to 10 years.

Similarly, violations can result in exclusion from participation in government healthcare programs, including Medicare and Medicaid.

Liability under the federal Anti-Kickback Statute may also arise because of the intentions or actions of the parties with whom we do business.

While we are not aware of any such intentions or actions, we have only limited knowledge regarding the intentions or actions underlying those arrangements.

Conduct and business arrangements that do not fully satisfy one of these safe harbor provisions may result in increased scrutiny by government enforcement authorities.

The majority of states also have anti-kickback laws which establish similar prohibitions and in some cases may apply more broadly to items or services covered by any third-party payor, including commercial insurers and self-pay patients.

knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government.

The federal civil False Claims Act prohibits, among other things, any person or entity from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment or approval to the federal government or knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government.

A claim includes “any request or demand” for money or property presented to the U.S.

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Intent to deceive is not required to establish liability under the civil federal civil False Claims Act.

In addition, private parties may initiate “qui tam” whistleblower lawsuits against any person or entity under the federal civil False Claims Act in the name of the government and share in the proceeds of the lawsuit.

Penalties for federal civil False Claim Act violations include fines for each false claim, plus up to three times the amount of damages sustained by the federal government and, most critically, may provide the basis for exclusion from the federally funded healthcare program.

On May 20, 2009, the Fraud Enforcement Recovery Act of 2009 ("FERA") was enacted, which modifies and clarifies certain provisions of the federal civil False Claims Act.

In part, the FERA amends the federal civil False Claims Act such that penalties may now apply to any person, including an organization that does not contract directly with the government, who knowingly makes, uses or causes to be made or used, a false record or statement material to a false or fraudulent claim paid in part by the federal government.

The government may further prosecute conduct constituting a false claim under the federal criminal False Claims Act.

The criminal False Claims Act prohibits the making or presenting of a claim to the government knowing such claim to be false, fictitious or fraudulent and, unlike the federal civil False Claims Act, requires proof of intent to submit a false claim.

When an entity is determined to have violated the federal civil False Claims Act, the government may impose civil fines and penalties ranging from $11,181 to $22,363 for each false claim, plus treble damages, and exclude the entity from participation in Medicare, Medicaid, and other federal healthcare programs.

The Civil Monetary Penalty Act of 1981 imposes penalties against any person or entity that, among other things, is determined to have presented or caused to be presented a claim to a federal healthcare program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent, or offering or transferring remuneration to a federal healthcare beneficiary that a person knows or should know is likely to influence the beneficiary’s decision to order or receive items or services reimbursable by the government from a particular provider or supplier.

The Civil Monetary Penalty Law imposes penalties against any person or entity that, among other things, is determined to have presented or caused to be presented a claim to a federal healthcare program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent, or offering or transferring remuneration to a federal healthcare beneficiary that a person knows or should know is

likely to influence the beneficiary’s decision to order or receive items or services reimbursable by the government from a particular provider or supplier.

The Health Insurance Portability and Accountability Act of 1996 ("HIPAA") also created additional federal criminal statutes that prohibit among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.

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Foreign laws and regulations may vary greatly from country to country.

For example, the advertising and promotion of our products is subject to E.U.

directives concerning misleading and comparative advertising and unfair commercial practices, as well as other EEA Member State legislation governing the advertising and promotion of medical devices.

These laws may limit or restrict the advertising and promotion of our products to the general public and may impose limitations on our promotional activities with healthcare professionals.

For example, the advertising and promotion of our products is subject to EU directives concerning misleading and comparative advertising and unfair commercial practices, as well as specific EEA Member State legislation governing the advertising and promotion of medical devices.

These laws, which vary between jurisdictions (thus making compliance more complex), may limit or restrict the advertising and promotion of our products to the general public and may impose limitations on our promotional activities with healthcare professionals.

Many EEA Member States have adopted specific anti-gift statutes that further limit commercial practices for our products, in particular vis-à-vis healthcare professionals and organizations.

Also, many U.S.

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Additionally, there has been a recent trend of increased foreign, federal, and state regulation of payments and transfers of value provided to healthcare professionals or entities.

The federal Physician Payments Sunshine Act imposes annual reporting requirements on certain drug, biologics, medical supplies and device manufacturers for which payment is available under Medicare, Medicaid or CHIP for payments and other transfers of value provided by them, directly or indirectly, to physicians (including physician family members), certain other healthcare providers, and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members.

A manufacturer’s failure to submit timely, accurately, and completely the required information for all payments, transfers of value or ownership or investment interests may result in civil monetary

penalties of $11,562 per failure up to an aggregate of $173,436 per year (or up to an aggregate of $1.128 million per year for “knowing failures”).

The federal Physician Payments Sunshine Act imposes annual reporting requirements on certain drug, biologics, medical supplies and device manufacturers for which payment is available under Medicare, Medicaid or CHIP for payments and other transfers of value provided by them, directly or indirectly, to physicians, as defined by statute, certain other healthcare providers beginning in 2022, and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members.

Manufacturers must submit reports by the 90th day of each calendar year.

Many EU Member States have adopted national “Sunshine Acts” which impose similar reporting and transparency requirements (often on an annual basis) on certain drug, biologics and medical device manufacturers.

Certain foreign countries and U.S.

states also mandate implementation of commercial compliance programs, impose restrictions on device manufacturer marketing practices and require tracking and reporting of gifts, compensation, and other remuneration to healthcare professionals and entities.

Violation of any of the federal and state healthcare laws described above or any other governmental regulations that apply to device manufacturers may result in significant penalties, including the imposition of significant civil, criminal and administrative penalties, damages, disgorgement, monetary fines, imprisonment, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, additional reporting requirements and/or oversight if the entity becomes subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and curtailment of operations.

Data Privacy and Security Laws

We are also subject to various federal, state, and foreign laws that protect personal information including certain patient health information, such as the E.U.

General Data Protection Regulation (“GDPR”) and the California Consumer Privacy Act (“CCPA”) which became effective as of January 2020, and restrict the use and disclosure of patient health information by healthcare providers, such as HIPAA, as amended by HITECH, in the U.S.

We are also subject to various federal, state, and foreign laws that protect personal information including certain patient health information, such as the EU General Data Protection Regulation (“GDPR”) and the California Consumer Privacy Act (“CCPA”) which became effective as of January 2020, and restrict the use and disclosure of patient health information by healthcare providers, such as HIPAA, as amended by HITECH, in the U.S.

HIPAA established uniform standards governing the conduct of certain electronic healthcare transactions and requires certain entities, called covered entities, to comply with standards that include the privacy and security of protected health information (“PHI”).

HIPAA also requires business associates, such as independent contractors or agents of covered entities that have access to PHI in connection with providing a service to or on behalf of a covered entity, of covered entities to enter into business associate agreements with the covered entity and to safeguard the covered entity’s PHI against improper use and disclosure.

HIPAA also requires business associates, such as independent contractors or agents of covered entities that have access to PHI in connection with providing a service to or on behalf of a

covered entity, of covered entities to enter into business associate agreements with the covered entity and to safeguard the covered entity’s PHI against improper use and disclosure.

The HIPAA privacy regulations cover the use and disclosure of PHI by covered entities as well as business associates, which are defined to include subcontractors that create, receive, maintain, or transmit PHI on behalf of a business associate.

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Department of Health and Human Services ("HHS") which would post the violation on its website, and to the media.

Failure to comply with the HIPAA privacy and security standards can result in civil monetary penalties up to $58,490 per violation, not to exceed $1.75 million per calendar year for non-compliance of an identical provision, and, in certain circumstances, criminal penalties with fines up to $250,000 per violation and/or imprisonment.

Failure to comply with the HIPAA privacy and security standards can result in significant civil monetary penalties and criminal penalties.

HIPAA authorizes state attorneys general to file suit on behalf of their residents for violations.

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In addition, California enacted the CCPA, effective January 1, 2020, which, among other things, creates new data privacy obligations for covered companies and provides new privacy rights to California residents, including the right to opt out of certain disclosures of their information.

The CCPA also creates a private right of action with

statutory damages for certain data breaches, thereby potentially increasing risks associated with a data breach.

The CCPA also creates a private right of action with statutory damages for certain data breaches, thereby potentially increasing risks associated with a data breach.

Although the law includes limited exceptions, including for “protected health information” maintained by a covered entity or business associate, it may regulate or impact our processing of personal information depending on the context.

and EEA we are subject to laws which restrict our collection, control, processing, and other use of personal data (i.e.

data relating to an identifiable living individual) including the GDPR (and any applicable national laws implementing the GDPR).

We process personal data in relation to our operations, including clinical trials.

We process data of our employees, contractors, suppliers, distributors, service providers, and our customers, as well as patient or clinical trial participants, including health and medical information of such participants.

We need to ensure compliance with the GDPR (and any applicable national laws implementing the GDPR) in each E.U.

and EEA jurisdiction where we are established or are otherwise subject to the GDPR (i.e., jurisdictions in which we are targeting or monitoring E.U.

and EEA located individuals, or offering goods or services to E.U.

located individuals.

Further, the California Privacy Rights Act (“CPRA”), recently passed in California.

The CPRA will impose additional data protection obligations on covered businesses, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data.

It will also create a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement.

The majority of the provisions will go into effect on January 1, 2023, and additional compliance investment and potential business process changes may be required.

In the EU, the EEA and the United Kingdom we are subject to laws which restrict our collection, control, processing, and other use of personal data (i.e.

data relating to an identifiable living individual) including the GDPR and the United Kingdom Data Protection Act 2018 (and any applicable national laws implementing the GDPR).

We process personal data in relation to our operations, including clinical investigations.

We process data of our employees, contractors, suppliers, distributors, service providers, and our customers, as well as patient or clinical investigation participants, including health and medical information of such participants.

We need to ensure compliance with the GDPR (and any applicable national laws implementing the GDPR) in each EU and EEA jurisdiction where we are established or are otherwise subject to the GDPR (i.e., jurisdictions in which we are

targeting or monitoring EU and EEA located individuals, or offering goods or services to EU located individuals.

We also need to ensure compliance with the Data Protection Act 2018.

The GDPR imposes onerous accountability obligations including:

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and high standards for data controllers to demonstrate that they have obtained valid consent for certain data processing activities.

In addition, the GDPR permits E.U.

Member State derogations for certain matters and, accordingly, we are also subject to E.U.

national laws relating to the processing of genetic data, biometric data, and health data.

In addition, the GDPR permits EU Member State derogations for certain matters and, accordingly, we are also subject to EU national laws relating to the processing of genetic data, biometric data, and health data.

We have a robust program that we believe ensures compliance with these obligations.

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In addition to the foregoing, a breach of the GDPR could result in regulatory investigations, reputational damage, orders to cease/ change our use of data, enforcement notices, as well potential civil claims including class action type litigation where individuals suffer harm.

We are also subject to GDPR requirements with respect to cross-border transfers of personal data out of the E.U.

and we need to ensure that such transfers are legitimized by valid transfer solutions and/or derogations under the GDPR (where required), including by entering into the E.U.

Commission approved model contracts for the transfer of personal data to third countries (i.e., the standard contractual clauses).

We note that there is ongoing litigation in the E.U.

challenging the legitimacy of the standard contractual clauses.

We are also subject to GDPR requirements with respect to cross-border transfers of personal data out of the EU and we need to ensure that such transfers are legitimized by valid transfer solutions and/or derogations under the GDPR (where required), including by entering into the EU Commission approved model contracts for the transfer of personal data to third countries (i.e., the standard contractual clauses).

The law is also developing rapidly and, in July 2020, the Court of Justice of the EU limited how organizations could lawfully transfer personal data from the EEA to the U.S.

As such, there is a possibility that the standard contractual clauses may be invalidated as a compliant data transfer mechanism in the near future.

In addition, the exit of the United Kingdom (“U.K.”) from the E.U.

will mean that at some point that the U.K.

will become a “third party” for the purposes of data transfers under the GDPR.

In addition, following the end of the Transition Period, the UK has become a “third party” for the purposes of EU-to-UK personal data transfers.

The significant implications of this are mitigated by the agreement of a 4-6 month grace period, during which time the EU Commission will consider whether to grant an adequacy decision which would continue to permit unrestricted EU-to-UK personal data transfers following the expiry of the grace period.

We have enlisted the help of external advisors to implement a robust GDPR program that we believe achieves and maintains compliance with these obligations, but it is likely it will require us to expend additional capital and other resources for upcoming GDPR changes.

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Any violation of data or security laws by our third party processors could have a material adverse effect on our business and result in the fines and penalties outlined above.

We are also subject to evolving E.U.

privacy laws on cookies and e-marketing.

is in the process of replacing the E-Privacy Directive with a new set of rules in the form of a regulation, which will be directly implemented in the laws of each European Member State.

We are also subject to evolving EU privacy laws on cookies and e-marketing.

The EU is in the process of replacing the E-Privacy Directive with a new set of rules in the form of a regulation, which will be directly applicable to all EU Member States.

The draft E-Privacy Regulation imposes strict opt-in marketing rules with limited exceptions for business-to-business communications, alters rules on third-party cookies, web beacons, and similar technology and significantly increases fining powers to the same levels as the GDPR (i.e.

the greater of 20 million Euros or 4% of total global annual revenue for certain breaches).

The e-Privacy Regulation is still going through the European legislative process and commentators expect it to be

agreed during 2020 or 2021, after which a two year transition period will follow before it is in force.

The e-Privacy Regulation is still going through the European legislative process and commentators expect it to be agreed during 2021, after which a two year transition period will follow before it is in force.

We have enlisted the help of external advisors to implement a robust GDPR program that achieves and maintains compliance with these obligations, but it is likely it will require us to expend additional capital and other resources for upcoming GDPR changes.

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The implementation of the Affordable Care Act in the U.S., for example, has changed healthcare financing and delivery by both governmental and private insurers substantially, and affected medical device manufacturers significantly.

The Affordable Care Act imposed, among other things, a 2.3% federal excise tax, with limited exceptions, on any entity that manufactures or imports Class I, II, and III medical devices offered for sale in the U.S.

that began on January 1, 2013.

Through a series of legislative amendments, the tax was suspended, effective January 1, 2016, and subsequently repealed altogether on December 20, 2019.

The Affordable Care Act also provided incentives to programs that increase the federal government’s comparative effectiveness research, and implemented payment system reforms including a national pilot program on payment bundling to encourage hospitals, physicians, and other providers to improve the coordination, quality, and efficiency of certain healthcare services through bundled payment models.

Additionally, the Affordable Care Act has expanded eligibility criteria for Medicaid programs and created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.

We do not yet know the full impact that the Affordable Care Act will have on our business.

There have been judicial and Congressional challenges to certain aspects of the Affordable Care Act, and we expect additional challenges and amendments in the future.

Moreover, the Trump Administration and the U.S.

Congress may take further action regarding the Affordable Care Act, including, but not limited to, repeal or replacement.

Most recently, the Tax Cuts and Jobs Acts was enacted, which, among other things, removes penalties for not complying with the individual mandate to carry health insurance, beginning in 2019.

The Affordable Care Act, among other things, provided incentives to programs that increase the federal government’s comparative effectiveness research, and implemented payment system reforms including a national pilot program on payment bundling to encourage hospitals, physicians, and other providers to improve the coordination, quality, and efficiency of certain healthcare services through bundled payment models.

Additionally, the Affordable Care Act expanded eligibility criteria for Medicaid programs and created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.

Since its enactment, there have been judicial, executive and Congressional challenges to certain aspects of the Affordable Care Act.

By way of example, the Tax Cuts and Jobs Acts was enacted, which, among other things, removes penalties for not complying with the individual mandate to carry health insurance, beginning in 2019.

On December 14, 2018, a U.S.

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Court of Appeals for the 5th Circuit upheld the District Court's decision that the individual mandate was unconstitutional but remanded the case back to the District Court to determine whether the remaining provisions of the Affordable Care Act are invalid as well.

It is unclear how these decisions, subsequent appeals, and other efforts to challenge, repeal or replace the Affordable Care Act will impact the Act and our business.

Supreme Court is currently reviewing the case, although it is unclear how the Supreme Court will rule.

It is also unclear how other efforts, if any, to challenge, repeal or replace the Affordable Care Act will impact the Act or our business.

In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted.

For example, the Budget Control Act of 2011, among other things, included reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2029 unless additional Congressional action is taken.

For example, the Budget Control Act of 2011, among other things, included reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2030, with the exception of a temporary suspension from May 1, 2020 through March 31, 2021, unless additional Congressional action is taken.

Additionally, the American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

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corporations and their foreign affiliates, which are intended to prevent the diversion of corporate funds to the payment of bribes and other improper payments, and to prevent the establishment of “off books” slush funds from which such improper payments can be made.

We also are subject to similar anticorruption legislation implemented in Europe under the Organization for Economic Co-operation and Development’s Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

We also are subject to similar anticorruption legislation implemented in Europe through EU Member State laws and under the Organization for Economic Co-operation and Development’s Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

Segment Information

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In the U.S., we have experienced, and may in the future experience, higher sales in the fourth quarter as a result of patients having paid their annual insurance deductibles in full, thereby reducing their out-of-pocket costs.

In the first quarter of each year in Europe, we have experienced, and may in the future experience, reduced demand for our Inspire therapy as Neue Untersuchungs-und-Behandlungsmethoden ("NUB") coverage status is being determined and as hospitals are establishing their budgets pertaining to allocation of funds to purchase our Inspire therapy.

As of December 31, 2019, we had 239 employees.

In the first quarter of each year in Germany, we have experienced reduced demand for our Inspire therapy as Neue Untersuchungs-und-Behandlungsmethoden ("NUB") coverage status is being determined and as hospitals are establishing their budgets pertaining to allocation of funds to purchase our Inspire therapy.

Beginning January 1, 2021, Inspire therapy is fully integrated into the German hospital reimbursement system (“G-DRG”), and we therefore may experience less seasonal fluctuations in Germany.

Human Capital

As of December 31, 2020, we had 317 employees in the U.S.

and 24 in Europe.

None of our employees is subject to a collective bargaining agreement or represented by a trade or labor union.

We consider our relationship with our employees to be good.

Corporate Information

We were incorporated in Delaware in November 2007 when our predecessor, Inspire Medical Systems, LLC, a Minnesota limited liability company, was spun-off from Medtronic.

Inspire Medical Systems, LLC merged with us in November 2007, and we continued as the surviving entity.

Code of Business Conduct and Business Ethics

All employees are expected to conduct business with the highest standards business ethics.

Each employee receives and agrees to follow the Inspire Medical Systems Code of Business Conduct and Ethics.

Employees are encouraged to discuss any related concerns with management or report concerns anonymously through an Ethics Hotline.

All reports received on the Ethics Hotline are investigated by an independent third party.

Culture of Respect and Inclusion

We strive to create a culture in which all employees feel heard, respected, and valued.

During 2020, all employees attended our Decency, Dignity & Respect online training program.

The goals of this program are to encourage broad and diverse viewpoints to achieve the best outcomes for our patients, healthcare providers and employees, and to build awareness of how our own behaviors impact our colleagues.

Talent Management & Development

Critical to our success is hiring the right employees and developing existing employees in their current roles as well as preparing them for future roles within the Company.

We created a structured talent acquisition process which supports our resource plans.

The process includes recruitment strategies to encourage diverse candidates to apply to positions for which they qualify.

On an annual basis, our leadership team participates in a talent review and succession planning exercise to identify organizational needs, development opportunities, and potential future leaders.

This enables us to identify the resources and skill sets needed to meet our growth objectives.

Compensation Philosophy to Drive High Performing Teams

Our human capital strategies, initiatives and outcomes are reviewed on a regular basis with our board of directors, ensuring alignment with the Company’s overall business strategies.

To ensure Inspire is able to attract, retain and develop high performing teams, the compensation committee of our board of directors established a compensation philosophy.

This committee engaged external compensation advisors to ensure rewards programs are competitive with a group of our peer companies.

To accomplish our objectives throughout the year, headcount plans and attrition rates are monitored and reviewed regularly with the board of directors.

COVID-19 Health and Safety

The health and safety of our employees is a top priority.

The COVID-19 pandemic has presented a unique challenge to maintain employee health and safety while continuing successful operations.

Through teamwork and the adaptability of our management and staff, we were able to quickly and efficiently transition most of our employees to be able to work from remote locations.

Many employees continue to work remotely.

Employees that work on site are provided with personal protective equipment and enhanced cleaning supplies and are required to adhere to appropriate protocols for social distancing, taking temperatures, reporting and documenting exposures and wearing masks at all times, all in accordance with recommendations and guidelines issued by the Centers for Disease Control or mandated by local regulations.

Community Engagement

Throughout the year, Inspire engages in community programs which align with our Company values.

In 2020, Inspire was a Silver Sponsor of the American Heart Association's Twin Cities Heart Walk and our CEO served as the Executive Chair of the event.

Additionally, our leadership team volunteered for Loaves and Fishes as a community service project feeding families in need.

Annually, we also participate in Toys for Tots.

Available Information

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What changed 10-K

Item 1. Business